Is There a Fix for the Greece Deadlock?

Euro zone finance ministers have failed to agree on conditions to release the next batch of bailout funds to Greece, putting a shadow on the European stock markets. The ministers, along with the International Monetary Fund and the European Central Bank, couldn’t come to an agreement on how to make Greece’s debt sustainable despite 12 hours of overnight talks in Brussels. Greece needs 31 billion euro in this next phase to keep paying its debt and avoid bankruptcy.

While European officials insisted the disagreements were technical and a deal would be reached in the next scheduled meeting on November 26, Germany hinted there were major issues left to be sorted out. A lawmaker who attended a post-meeting briefing in Germany’s parliament told Reuters that German Finance Minister Wolfgang Schaeuble saw the extension of the debt sustainability goal as one of the main bones of contention. “The other is how to cover the Greek financing gap of 14 billion euros through 2014,” the lawmaker said.

Greece wants more time to reach fiscal targets set by its lenders and while European governments agree to a two-year extension, the IMF does not. In turn, euro zone member states are refusing to write off any loans, the other option that would help Greece cut its debt to a sustainable level. According to a document prepared for the meeting, Greece’s debt cannot be cut from 170 percent of GDP to the targeted 120 percent unless either a portion of its loans are written off or the IMF extends its deadline to 2022.

“It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures … and it would have consequences under budget law,” German budget spokesman Norbert Barthle said, according to Reuters.

Among the possible solutions under consideration are a buyback program under which Greece would purchase bonds from private investors at a deep discount, reduce interest rate on existing loans, and allowing a long moratorium on interest payments.